The European Commission has set aside 1bn euros (£675m) to boost energy infrastructure and democratic reforms in former Soviet and Mediterranean countries on its borders.

Critics say the move comes as a recognition that the EU has to provide bigger carrots if it wants stable and democratic neighbours.

The European Union launched its neighbourhood policy in May 2004, when it opened its doors to10 countries from Eastern and Southern Europe.

The idea was to turn the countries of the former Soviet Union, North Africa and the Middle East, which have distant or no prospects of becoming full members, into "a circle of friends".

The policy sets out tailor-made action plans for individual countries - from Ukraine to Jordan - including more trade and aid and participation in EU programmes in exchange for political and economic reforms.

Two years on, many in the EU believe it is time for a rethink. Not least the EU External Affairs Commissioner, Benita Ferrero-Waldner.

While the EU offer is substantial but long-term, Russia applies very strong, clear pressure, which has very quick results

Nicu PopescuCentre for European Policy Studies

"Now the Commission is looking to strengthening this policy," she says.

"There will be a clearer focus on energy issues both at the bilateral but also at the regional level.

"Co-operation in the Mediterranean, in the Black Sea and in the Caspian areas will also be enhanced. And we also intend to improve the impact and leverage of the EU funding, including through the Neighbourhood and Partnership Instrument and the creation of a new Neighbourhood Investment Fund."

Sweeteners

The changes will not just concern energy, although the EU is keen to secure alternative supply routes for oil and gas through the Caucasus and North Africa.

The general trend is to offer to eastern neighbours some of the things already offered to those in the south - the possibility of free trade deals and loans on favourable terms from the European Investment Bank (EIB).

Ms Ferrero-Waldner has announced two new funds, jointly worth 1bn euros.

A Neighbourhood Investment Fund, worth 700m euros, is supposed to attract additional cash from international financial organisations, such as the EIB and the European Bank for Reconstruction and Development (EBRD), for big energy and infrastructure projects.

A smaller fund, worth 300m euros, will reward the countries that have made more progress.

This year, Morocco and Jordan have already been awarded 70m euros extra between them for increasing border controls and setting up a joint group to discuss democracy.

Another important sweetener is easier and cheaper visas for countries like Ukraine and Moldova.

Long process

But Nicu Popescu, a researcher at the Centre for European Policy Studies in Brussels, thinks the EU takes too long to deliver.

"Definitely there is progress but the pace of this progress is extremely slow. If you look at Ukraine, it will take maybe a year, maybe a year-and-a-half, until this visa facilitation regime is ratified in the European Union.

The carrots the EU is offering are not big enough and juicy enough to... give the incentives to carry out painful reforms

Charles GrantCentre for European Reform

"In the case of Moldova, negotiations on this visa facilitation regime weren't even started. So basically all the progress that the EU is making is extremely slow for these countries.

"In the meantime, while the EU offer is substantial but long-term, Russia applies very strong, clear pressure, which has very quick results."

He says that very often for countries like Moldova, Georgia, Azerbaijan or Ukraine, "the choice is between waiting for a vague long-term offer from the EU and accepting the conditions which Russia is imposing on them, in the context of very serious economic pressures like wine bans, doubling or tripling of gas prices".

Russia, the EU's biggest and arguably most difficult neighbour, is not included in the European Neighbourhood Policy. The EU hoped to launch talks on a new strategic partnership agreement with Russia in Helsinki, but failed to achieve a common position.

'Structural flaw'

European governments are also divided on how to deal with the other neighbouring countries, as Charles Grant from the London-based Centre for European Reform, explains.

"A lot of the EU member states don't like it, they fear that the neighbourhood policy could be seen as a stepping-stone towards enlargement.

"So the French, the Dutch, the Spanish and others have intervened to make sure the action plans for the three Caucasus countries are very mean - no mention of how they can sign up to EU foreign and security policy, nothing about visa facilitation.

"Of course, the countries themselves, the neighbours, have a poor record of implementing the action plans, they don't have the administrative capacity to implement them.

"But the basic problem with the European Neighbourhood Policy is the structural flaw. I mean the carrots the EU is offering are not big enough and juicy enough to really give the political leaders in the countries concerned the incentives to carry out painful reforms."

That dilemma is likely to stay with the EU. The bloc is unlikely to welcome any new members except for Romania and Bulgaria in the next few years, so it has to look for new ways to prevent instability and ethnic strife in its backyard.

Germany, which takes over the EU presidency next year, has already promised to draw the neighbours nearer.